Echoes of Brexit as panicked global markets take a nosedive

Share prices plummeted around the world, and traders scrambled for safe investments such as gold and the Japanese yen, as confidence in a Hillary Clinton victory yielded to the likelihood of a President Trump.

In London, the FTSE 100 was expected to open down by as much as 281 points this morning.

IG, the investment company, said the UK blue chip index would drop by more than 4 per cent, having closed at 6,843.13 last night. On the day after Britain voted to leave the European Union in June, it closed down 3.1 per cent.

Markets are reacting as though the four horsemen of the apocalypse just rode out of Trump TowerSean Callow, Westpac

The DAX index in Germany was forecast to open down 4.3 per cent, or 446 points, with France’s CAC 40 down 4.2 per cent, or 186 points.

After modest gains in early trading as the first results came in as expected, US stock futures plunged as the ongoing count revealed Mr Trump to have won the crucial battleground states of Florida, Ohio, Iowa and North Carolina. In Mexico, the economy which faces the most direct threat from a President Trump, the peso fell more than 13 per cent to its lowest level ever against the dollar.

Mr Trump has promised to abandon a trade agreement with Mexico and impose tariffs on the US-bound exports on which so much of its economy depends. He has also said that he will build a wall to exclude illegal migrants, and tax money sent back home by legitimate ones. News of his success in Florida, a state with a large Hispanic population, added to the sense of panic, and the sell-off of the peso.

The shocked jitters of markets around the world at the unexpected election results was reminiscent of the events five months ago when British voters chose to leave the European Union.

“With Brexit we had one bad day but this is different,” said Donald Selkin of National Securities in New York. “This is what’s scary about putting the most powerful position in the world in the hands of a man who many believe is temperamentally unstable. His tax cuts could open up a huge increase in the budget deficit and his trade sanctions could interrupt world trade. This could put us in a recession.”

The S&P 500 futures index, which had risen by 0.8 percent, fell by 5 per cent in overnight trading, its limit until daytime trading resumes on Wednesday morning. The London futures market also fell by 4 per cent. Yields on 10-year U.S. Treasury yields fell to 1.8 per cent from a six-month high of 1.9 per cent.

Gold, always a safe haven in times of turmoil, climbed 3.4 per cent on the commodity markets to $1,318 an ounce. Oil fell, because of generalised anxiety about the effect on the global economy of an untested Trump White House, with West Texas Intermediate crude futures down by more than 4 per cent to $43.07 a barrel.

In Asia, where cautious confidence in a Clinton victory had been boosting markets, a morning of mild fluctuations ended in a frenzy of selling.

Japan’s Nikkei 225 fell by as much as 6.1 per cent, and closed down 5.4 per cent. There were falls in stock exchanges in Australia, South Korea, Hong Kong, Shanghai, Taiwan and most of south-east Asia.

India’s NS share index fell as much as 6.3 per cent, and the central bank intervened to support the falling rupee. Traders reported that the South Korean authorities had also intervened in currency markets to prop up the won.

Senior officials from the Bank of Japan and the country’s ministry of finance and Financial Services Agency held an emergency meeting to discuss the situation this afternoon.

The dollar was down 3.2 per cent to 101.6 yen from a peak of 105.5 yen, as traders sought out the stability of the Japanese currency.

“Markets are reacting as though the four horsemen of the apocalypse just rode out of Trump Tower,” said Sean Callow of Westpac in Sydney. “Or at least 3 of them – it might be 4 when the prospect of a clean sweep of Congress sinks in.”

“This is truly a historic moment,” said Benito Berber of Nomura in New York. “I don’t recall such an extreme outlook on the U.S. economy that could be so negative to the Mexican economy.”

Brian Jacobsen of Wells Fargo Management is Wisconsin said, “It’s kind of a shock-and-awe type response, both because it creates all sorts of unknowns as to not only what sorts of policies will be implemented, but what timetable they will be implemented.

“Markets are doing a textbook risk off move here because of all that uncertainty. A lot of people are fearful about what it could mean not only for US growth but global growth if Trump makes good on his promise to impose tariffs on Mexican goods and Chinese goods, triggering a trade war.

“This isn’t going to be just a drop-down and bounce-back sort of scenario. Because of these unknowns, this risk off mood could persist well into 2017.”

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